Faster Payments

GM, Ford Speed Up Payments To Small Suppliers Hurt By Shutdowns

car manufacturing

Two of the nation’s largest automakers are paying suppliers upfront to help small cash-strapped suppliers survive shutdowns caused by COVID-19.

General Motors Co. and Ford Motor Co. have introduced programs to fast-track payments that typically take up to 60 days to be paid, Reuters reported.

The car giants say they are making these payments a priority because keeping small wholesalers thriving is critical for automakers as they reopen factories, according to the report.

GM spokesman David Barnas said the car company launched its “Early Payment Program” last summer with Wells Fargo & Co. They now use it as a way to support suppliers during the pandemic.

Under the deal, a supplier gets an earlier payment from Wells Fargo for the full invoice, after paying a financing fee. GM later pays Wells Fargo the full amount.

GM said the difference in the cost of financing is linked to the automaker’s credit rating, not the supplier’s. This allows the smaller companies to leverage the car company’s financial strength for lower costs. It did not disclose other financial details. Ford’s program is similar.

“It is not a silver bullet,” Scott Eisenberg, partner at Amherst Partners, a Michigan-based restructuring advisory firm, told Reuters.

He said the fast payments come as pressure on suppliers is expected to increase this summer as lenders retreat from making loans.

“If we have this second (coronavirus) wave in the fall, the access to capital that everyone had in March won’t be the same in September and October,” Eisenberg added.

Robert Roth, co-owner of RoMan Manufacturing, a transformer and glass molding equipment manufacturer in Michigan, said companies with strong balance sheets, like his, can avoid such deals, while others have few options.

“The cost of such deals compared to the cost of being out of business is not really a choice,” he told the news service.

Jennifer Flake, a Ford spokeswoman, said the automaker launched its program last week with a small group of suppliers. They intend to expand, she added.

Flake said Ford is working with Greensill, a London-based provider of capital finance for businesses globally.

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New PYMNTS Report: The CFO’s Guide To Digitizing B2B Payments – August 2020 

The CFO’s Guide To Digitizing B2B Payments, a PYMNTS and Comdata collaboration, examines how companies are updating their AP approaches to protect their cash flows, support their vendors and enable their financial departments to operate remotely.

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